The Market for Good X is perfectly competitive. The graph below depicts the beha

Question

The Market for Good X is perfectly competitive. The graph below depicts the behavior of the typical producer of Good X, that is operating in the Short Run Py MC ATC 8i the current equilitbrium market price of Good X. hos On the graph, identify P. This firm will 1, q(1) A. earh otal Revenue (TR) if it produces at 3. q(3) B. 2.9(2) 4. q(4) 5. q(5) |6.1g(6) C. This firm will minimize its Total Cost (TC) if it produces at 4. q(4) 6. 9(6) 5, 9(5) This firm's level of Average Fixed Costs (AFC) will be lowest at 1. q(I) 2. g(2) 3. q(3) D. E. At which production point(s) will this firm break even (Gi.e., earn zero economie profits)? 1. q1) 2. q(2) 3. g(3) 4. 9(4) 5. q(5) 6. q(6) F. At which production point is this firm maximizing profits? 6. g(6)

Explanation / Answer

A) Equilibrium price occurs at the point on the y-axis where ther demand line makes its intercept on the y-axis.

B) Maximum revenue is earned at the point q6 shown by the area below the demand curve till the quantity q6. Answer is 6.

C) Total cost is shown by the area under the average total cost curve till the quantity produced. Minimum of AC is at q4. Thus the answer is 4.

D) The gap between the ATC and AFC gives the AFC. AFC is thus minium at q6 where the gap between the two curves is the least. Answer is 6

E) The firm breaks even when Total revenue equals total cost and economic profits are zero. This occurs at q5. Thus answer is 5.

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